Here's what all of the commentary I've read has overlooked. Signatures are utterly irrelevant to consumers except to the extent that the slow down the transaction. (Ok, they also require those germaphobes among us to touch a shared pen when we were doing just great with a contactless NFC transaction). The signature requirement has ZERO effect on consumer liability. Federal law already limits consumer liability on unauthorized credit card transactions to $50. But that $50 liability only applies if (1) it is an "accepted card" and (2) the card issuer has provided a means to identify the cardholder, and those limitations mean that consumers are rarely, if ever, actually liable for unauthorized credit card transactions. Put another way, the statute says $50, but it is basically saying $0.

For the spring semester, I am offering advanced commercial law and contracts seminar for UNC students, and have gathered resources to inspire students on paper topic selection as well as to guide what we otherwise will cover. But given the breadth of what might fit under the umbrella of the seminar's title, the students and I would greatly benefit from learning what Credit Slips readers see as the pressing issues in need of more examination in the Uniform Commercial Code, the payments world, and beyond. Some students have particular competencies and interests in intellectual-property and/or transnational issues, so specific suggestions in those realms would be terrific. Comments are welcome below or you can write us at bankruptcyprof <at> gmail <dot> com.

We also are going to do a wiki of commercial law jargon/terminology. So please also toss some terms our way through the same channels as above (or Twitter might be especially useful here: @melissabjacoby).

The media attention on the Equifax breach has been primarily on consumer harm. There's real consumer harm, but it's generally not direct pecuniary harm. Instead, the direct pecuniary harm from the breach will be borne by banks and merchants, and it's going to expose the move to Chip (EMV) cards in the United States without an accompanying move to PIN (as in Chip-and-PIN) to be an incredibly costly blunder by US banks. Basically, Visa, Mastercard, and Amex have built the commercial equivalent of the Maginot Line. A great line of defense against a frontal assault, and totally worthless against a flanking assault, which is what the Equifax breach will produce.

Guess who’s sponsoring legislation to facilitate predatory lending? It’s not just the usual suspects from the GOP, but it looks like a number of centrist “New Democrats” are signing up to help predatory financial institutions evade consumer protections.

Yup, you heard me right: Democrats. Ten years after the financial crisis, it seems like we’ve gone back to the mistakes of the Clinton years when centrist Democrats rode the financial deregulatory bandwagon. What I’m talking about is the McHenry-Meeks Madden “fix” bill, the “Protecting Consumers’ Access to Credit Act of 2017”. The bill effectively preempts state usury laws for non-bank finance companies like payday lenders in the name of ensuring access to credit, even if on extremely onerous terms.

Right now there's only one Democratic co-sponsor, but others seem to be preparing to join in. They shouldn't, and if they do sign onto this bill, it should only be in exchange for some solid consumer protections to substitute for the preempted state usury laws. This bill should be seen as a test of whether New Democrats "get it" about financial regulation. I'm hoping that they do. If not, perhaps its time to find some new Democrats.

The Supreme Court ruled today in Expressions Hair Design v. Schneiderman. The Court unanimously ruled for the merchant plaintiff that was challenging New York State's no-surcharge law on the basis that a law criminalizing credit surcharges (but not cash discounts) was impermissibly vague. The Court declined to rule on the plaintiff's First Amendment challenge because the Second Circuit Court of Appeals had held that New York law regulated conduct, not speech, so the Court of Appeals had never considered whether there was a First Amendment violation if the pricing was a form of speech. The Supreme Court determined that the law regulates speech and remanded the First Amendment issue to the Court of Appeals.

Five Justices were on the majority opinion with a pair of concurrences driven by procedural concerns (Alito + Sotomayor) or a fear that the case will be used as a precedent for attacking economic regulation via the First Amendment (Breyer).

Technically the opinion is narrow, as it addressed only an as-applied challenge based on a pricing regime in which two prices are simultaneously listed, with neither labeled a surcharge or discount, but I suspect that the effect of the opinion will be much broader. If, on remand, the plaintiff's First Amendment argument is accepted (and I suspect it will be), the opinion will be pretty important in terms of development of payment systems. Prior to today there were two obstacles to effective price discipline on consumer payment choice: state no-surcharge laws and credit card networks' merchant rules. The state no-surcharge laws are gone now, leaving only the card networks' merchant rules. MasterCard and Visa had previously agreed to substantially rollback their rules on surcharging in an overturned class action settlement. It's going to be hard for them to argue against making that concession now, unless they are willing to admit that it wasn't previously made in good faith because they knew that surcharging wouldn't be used on any scale in the presence of state no-surcharge laws.

I'm trying something new this year. My consumer bankruptcy policy seminar students will readmanygreatarticles by many wonderfulacademics on this blog, as well as others, but this year, their "reading" will also include a great deal of YouTube.

Every wondered how ApplePay works? What the whole deal with Chip cards is? Those contactless readers at stores? If you're looking to nerd out on 21st century payment technology...and its legal and business implications, look no further. I have a new paper out entitled Pandora’s Digital Box: Digital Wallets and the Honor All Devices Rules. The paper was commissioned by the Merchant Advisory Group, a retail industry trade association that focuses on payment issues. The paper, which benefitted from interviews with the payments teams from a number of the largest merchants in the US, covers the range of technologies known as "digital wallets," including mobile wallets like ApplePay and Samsung Pay (with the magnetic stripe emulation). The paper focuses on the potential benefits, but particularly the risks posed by digital wallets to merchants, and the legal implications, which are primarily antitrust issues.

The basic issue with digital wallets is that they aren't all the same in terms of costs and benefits, but merchants have to accept them equal on an all-or-nothing basis. Digital wallets involve lots of different technological and business arrangements that affect security, control over data, control over customer relationships, IP litigation risk, choice of payment method, and cost of payment. Some wallets are very attractive to merchants; others less so. Merchants, however, cannot accept digital wallets selectively or condition the terms of acceptance for particular wallets. This is because Visa, MasterCard, and American Express all have so-called "Honor All Devices" rules that require merchants to accept payments without discrimination from all devices using any technology accepted by the merchant. The arrangement has the nasty (but probably not coincidental) effect of foreclosing entry to digital wallets that offer cheaper payments, such as those that use PIN debit or ACH.

If this sounds a bit like a redux of the Honor All Cards rule and the two previous monumental rounds of antitrust litigation that produced (first on the tying of signature-debit and credit, second on the tying of different credit products, among other things), well, you're right. The problems that arise with the Honor All Devices rule show that things have not been properly resolved in terms of anticompetitive behavior in the payment card space, and the issues are just migrating over to new technologies.

We know little about the financial lives and credit constraints of undocumented immigrants, partly because they are such a difficult to reach population. But Slips contributor Nathalie Martin gained access to this population in Albuquerque, New Mexico, interviewed 50 immigrants, and recently published a paper that provides an important glimpse into how this population handles money and finances. As the paper's title -- Giving Credit Where Credit Is Due: What We Can Learn from the Banking and Credit Habits of Undocumented Immigrants -- suggests, this population is leery of taking out credit, despite having so little income and savings that unexpected expenses quickly can become financial crises.

One of the most interesting, but expected findings is this population's extremely low level of savings. When asked if they could handle an unexpected expense of $100, three-quarters of respondents (37 of the 50) said they could not. But the majority of interviewees also expressed serious concerns with taking out credit, including via credit cards and the almost inevitable title loans (and payday loans, but most payday loans require a bank account, which a majority of respondents did not have). Indeed, they stated that they would rather ask family and friends for help, including help in trying to find work, which adds nuance to what we know about low-income individuals' feelings about relying on family and friends to deal with unexpected expenses (for instance, see Laura Tach and Sara Greene, Robbing Peter to Pay Paul). Martin's paper also contains data about how undocumented immigrants think about what ultimately often are legal problems and using (or not using) the legal system. Taken together, the paper provides a needed first glimpse into the financial lives of a subset of people who are in the country.

The Seventh Circuit Court of Appeals recently slammed Cook County Sheriff Thomas Dart for his actions trying to get Mastercard and Visa to stop processing payments for Backpage, an advertising website whose ads include various adult services (some legal, some not). The Backpage decisions has been taken as an indication of the strength of the legal case by some payday lenders against the FDIC, OCC, and Fed over Operation Choke Point.

Unfortunately, Judge Posner got it wrong in Backpage because he incorrectly assumed facts not in the record. But even if he got it right, there's a lot that differentiates Operation Choke Point (whose name does, unfortunately, sound like it might be from an adult ad on Backpage).

A regular trope sounded by opponents of consumer financial regulations is that the regulations have resulted in the disappearance of free checking. Whether it's the Durbin Interchange Amendment, the CFPB, or the Dodd-Frank Act in general, all are variously blamed for the supposed demise of free checking. As it turns out, free checking is a little like Mark Twain--reports of its death have been greatly exaggerated. Most Americans with bank accounts report paying nothing for their services. The prevalance of such respondents has actually increased since 2010, from 53% to 61% of respondents.

The past year has seen two notable innovations in the payments world and a third is coming down the pike. ApplePay was rolled out last spring, the EMV liability shift went into effect on October 1, and the Fed has convened a task force on designing a faster payment system. All three of these developments seem unlikely to result in major changes in payments unless they come up with a clear value proposition for consumers, merchants, or both.

Both sides in the interchange fee debate have pointed to a recent Richmond Fed study as evidence supporting their position (here and here). Frankly, it's hard to tell without agreeing on a baseline for analysis: pre-Durbin interchange fees or what the fees would have been but for Durbin or the anticipated post-Durbin drop in fees? The finding that most merchants didn't notice a change in their merchant fees (which, of course, aren't the same as interchange fees) means very different things depending on the baseline used: that Durbin is pointless, that Durbin saves merchants money, or that Durbin isn't working as intended because of a defective rulemaking by the Fed.

In the midst of the race to claim vindication based on the study, however, no one seems to have noticed that a least some of the data used in the study—which comes from a merchant survey conducted by Javelin Strategy and Research—seems a little screwy.

The Federal Reserve System has embarked on a project of exploring the possibility of faster retail payments in the United States. A similar move has occurred with the UK Payments Council. At the same time, the Electronic Payments Network is rolling out a faster version of ACH.

Here's what puzzles me: what on earth is the business case for faster retail payments in the United States? The U.S. payment system works incredibly well. Yes, it has flaws: the interchange system is unfair and security is atrocious. But those aren't really speed issues. Real-time authentication is a security issue, but that's separate from speed of payment clearance and settlement.

Now, it's true that the US lags behind other countries in terms of mobile payment technology. We don't have anything like Kenya's m-Pesa mobile payment system. But there's a reason for that: we don't need m-Pesa in the US because we already have a functioning retail banking system, and our banks are better safety-and-soundness risks than our telecom operators. (Kenya's government owns a large share of m-Pesa, making it quasi-guarantied, I guess.)

So readers, tell me, what am I missing? Is there a business case, or is this just about chasing shiny bells and whistles and wanting to have the latest technology just because? My sense is that we're seeing an "iPhone effect" of wanting the best and newest, even though the current system is just fine.

In a recent case called Madden v. Marine Midland Funding, the Second Circuit ruled that a loan owned by a debt collector violated New York's usury statute. The loan had been originally made by a national bank and was subsequently sold to the debt collector when it was in default. There's no question that the state usury law was preempted when the loan was held by the national bank. The Supreme Court's (awful) Marquette National Bank v. First of Omaha Service Corp. decision from 1978 makes that very clear. (The Court suddenly discovered in 1978 that over a century of legal understanding of the 1864 National Bank Act was somehow wrong and that banks had been leaving lots of money on the table.)

The debt collector argued that because the loan had been made by a national bank, it carried preemption of state usury laws with it as a permanent, indelible feature. "Applesauce!" proclaimed the Second Circuit: National Bank Act preemption of state usury laws extends no further than National Bank Act regulation. Preemption is part of a package with regulation, but once the loan passes beyond the hands of a National Bank, it loses its preemption protection and becomes subject to state usury laws. (Some of you might recognize that this is an argument I made several years ago. Plaintiff's counsel sent me a very nice email to this effect. You owe me a citation, 2d Circuit!).

Lately I have been teaching courses with names such as "Global and Economic Justice" and "History, Impacts and Regulation of Consumer Credit" instead of "Bankruptcy," "Secured Transactions" and "Chapter 11 Reorganizations." So I have been reading different books and listening to different speakers. A lecture I attended recently by Xav Briggs here brought to my mind a couple of books that I use in one of my courses, “Borrow” and “Debtor Nation” both written by Louis Hyman. In many ways Hyman's books remind me of "Credit Card Nation" the outstanding and "ahead of its time" book by Robert Manning which I used extensively when I created my consumer credit course in 2002.

Part of the wisdom I find in each of these books is the caveat that you cannot understand consumer protection without understanding the nature of American capitalism or the drive for an above-market return. This was never clearer or more of a "blow to the side of the head" than during the frenzy in the early 2000's, and perhaps nothing demonstrates it more crassly than the rating agencies covering their eyes as they rated subprime securitizations allegedly in order to "keep the business."

Clearly, the biggest surprise in consumer borrowing since the crash has been the explosive expansion of student loan debt. It has surpassed both auto lending and credit card lending. And, since it ties with Payday Lending and pre-crash sub-prime mortgage lending for the thinnest underwriting there are defaults aplenty.

Consumer advocates are rightly urging the Department of Education to provide simpler and clearer paths forward for consumers with student loans in default but many people still need a helper. As defaults in mortgage loans and on credit card loans have fallen, providers who live on the profits of counseling people who default on those loans have turned their attention and their advertising and marketing to consumers who are in trouble on their student

Last week, the FDIC released its 2013 National Survey of Unbanked and Underbanked Households. Some of the Survey's results were similar to the FDIC's 2009 and 2011 surveys. 7.7% of households were unbanked. Another 20% of households were underbanked. I took note of the Survey because its maps of unbanked and underbanked rates by state have been receiving some attention online. But what I think is more intriguing are the Survey's questions about prepaid cards.

General purpose reloadable prepaid cards, though still a small segment of the consumer financial products market, have grown rapidly in past years -- from $28.6 billion in 2009 to close to $65 billion in 2012 (as previously discussed). Consistent with this growth in dollars, the Survey found that prepaid card use had increased among all households from 2009 to 2013 -- from 9.9% to 12%. More interestingly, the share of unbanked households that used prepaid cards had increased more dramatically -- from 12.2% in 2009 to 17.8% in 2011 to 27.1% in 2013. By comparison, 19.6% of underbanked households and 8.8% of fully banked households had used prepaid cards in 2013. When combined, unbanked and underbanked households comprised the majority (55%) of prepaid card users in the previous 12 months.

Consider this nightmare scenario: what if the hackers had just zeroed out all of those 76 million Chase accounts and wipes out months of transaction history making it impossible to determine exactly how much money was in the accounts at the time they were zeroed out? The money wouldn't even have to be stolen. Just the account records changed. What would happen then?

Apple Pay has been getting a lot of attention, and I hope to do a longer post on it, but for now let me highlight one possible issue that does not seem to have gotten any attention. I think Apple may have just become a regulated financial institution, unwittingly. Basically, I think Apple is now a "service provider" for purposes of the Consumer Financial Protection Act, which means Apple is subject to CFPB examination and UDAAP.

One of the competitors in the Great Mobile Payments Race is changing its name. Isis Wallet, a mobile payments joint venture of AT&T, Verizon, and T-Mobile is changing its name to Softcard for fairly obvious reasons. Isis Wallet operates by having the consumer store his/her payment card information on a "secure element"--tech speak for a tamper resistant chip that safely stores encrypted information. (The particular secure element for Isis Wallet depends on the phone model.) That payment information is then communicated with merchants using NFC (near field communications, i.e., contactless). Isis Wallet also integrates various loyalty programs and merchant offers (including some that are proximity based). As Apple's Apple Pay platform shows, mobile payments is becoming a crowded field with some real heavyweights. Yet, as I'll blog shortly, there are some real challenges ahead for anyone in the field.

At today's House Judiciary Committee hearing on Operation Choke Point it seemed that Choke Point's critics are conflating a fairly narrow DOJ civil investigation with separate general guidance given by prudential regulators. In particular, Rep. Issa attempted to tie them together by noting that the DOJ referenced such guidance in its Choke Point subpoenas, but that's quite different than actually bringing a civil action on such a basis (or on the basis of "reputational risk"), which the DOJ has not done.

There is a serious issue regarding the bank regulators' use of "guidance" to set policy. Guidance is usually informal and formally non-binding, but woe to the bank that does not comply--regulators have a lot of off-the-radar ways to make a bank's life miserable. This isn't a Choke Point issue--this is a general problem that prudential bank regulation just doesn't fit within the administrative law paradigm. There are lots of reasons it doesn't and perhaps shouldn't, but when it is discovered by people from outside of the banking world, it seems quite shocking, even though this is how bank regulation has always been done in living memory: a small amount of formal rule-making and a lot of informal regulatory guidance. By the same token, however, compliance with informal guidance is enforced informally, through the supervisory process, not through civil actions, precisely because the informal guidance is not actionable. Yet, that is what Choke Point critics contend is being done--that DOJ is using civil actions to enforce informal guidance.

I don't think that's correct (or at least it hasn't been shown). But the conflation of DOJ action with prudential regulatory guidance may be creating the very problem Choke Point's critics fear.

Bank compliance officers may be hearing what Choke Point critics are saying and believing it and acting on it. If compliance officers believe that the DOJ will come after any bank that serves the high-risk industries identified by the FDIC or FinCEN, not just those that knowingly facilitate or wilfully ignore fraud, they will respond accordingly. The safe thing to do in the compliance world is to follow the herd and avoid risks. The attack on Operation Choke Point may well have spooked banks' compliance officers, who'd aren't going to parse through the technical distinctions involved.

What matters is not what the DOJ actually does, but what compliance officers think the DOJ is doing, and they're likely to head the loudest voice in the room, that of Choke Point's critics. So to the extent that we are having account terminations increasing after word got out of Operation Choke Point it might be because of Choke Point's critics' conflation of a narrowly tailored civil investigation with broad prudential guidance. Ironically, we may have a self-fulfilling hysteria whipped up by Choke Point critics, who shoot first and ask questions later.

Pop quiz: what do payday lenders have in common with on-line gun shops, escort services, pornography websites, on-line gambling and the purveyors of drug paraphrenalia or racist materials?

You can read my testimony for this Thursday's House Judiciary Committee, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law's hearing on Operation Choke Point to find out. Or you can just keep reading here.

Todd Zywicki, Geoff Manne and Julian Morris have an article on the effect of the Durbin Amendment. Sigh. No surprises here. Zywicki et al. are making claims beyond what their data can support and in fact directly contradicted by their own data, which shows that some of the "effects" of Durbin preceded the enactment and effective date of the Amendment.

The book project developed out of a stimulating multi-disciplinary conference at Washington University in St. Louis. Participants had great interest in considering how bankruptcy scholarship fits within the larger universe of research on financial insecurity and inequality. My chapter with Mirya Holman synthesizes the literature on medical problems among bankruptcy filers and presents new results from the 2007 Consumer Bankruptcy Project on coping mechanisms for medical bills, looking more closely at the one in four respondents who reported accepting a payment plan from a medical provider. Not surprisingly, these filers are far more likely than most others to bring identifiable medical debt, and therefore their medical providers, into their bankruptcy cases. We examine how payment plan users employ strategies - including but not limited to fringe and informal borrowing - to manage financial distress before resorting to bankruptcy, and (quite briefly) speculate on the future of medical-related financial distress in an Affordable Care Act world.

Monday was our last day of classes. This semester I taught a seminar about the role of consumer credit in the United States' economy and society through the lens of consumer bankruptcy (primarily utilizing data and papers from various iterations of the Consumer Bankruptcy Project; find info about the seminar, which was designed by Katie Porter, here). Fittingly, the final project was to write a proposal for an empirical study of an important and under-studied issue regarding consumer credit and/or bankruptcy. A couple students honed in on the lack of research regarding the make-up of credit card debt that debtors seek to discharge through bankruptcy. Is the debt incurred for everyday necessities, such as groceries and gas to drive to work? Is a sizable portion for medical expenses? Or is the debt incurred for 3D televisions, designer suits, and other luxuries?

The students' proposals were a bit broad (admittedly because I let them be a bit fanciful), and called for reviewing all of debtors' credit card statements for the three years prior to filing and conducting extensive interviews with debtors to tease out the nature of the expenses behind the thousands of dollars in credit card debt that the average consumer seek to discharge. Coincidentally, the day that some of my students presented their proposals, Amy Traub (from Demos) came out with a new study titled "The Debt Disparity: What Drives Credit Card Debt in America." The study relies on a survey of 1,997 low and middle-income households, half of which carry credit card debt and half of which do not. The study doesn't answer my students' ultimate question, but the data may shine some light on the characteristics of households that tend to carry credit card balances and what types of expenses may underlie their credit card debt.

After reading two reports released yesterday I'm even more convinced that these are among the most critical issues. The FTC announced their top 2013 complaints (debt collection still the top industry complained about) and US PIRG released a report on the more than 11,000 complaints the CFPB received on debt collection over a six month period. The PIRG report in particular highlights just how important the integrity of the information and documentation passed from collector to collector is (and how badly this is working right now). Most consumers were complaining that the debt was not theirs (25%), they were not given enough information to verify the debt (13%), or that the debt had already been paid (11%).

This is exactly the underlying issue that we address in our ANPR comment: something is very wrong when a debt buyer only gets a spreadsheet with some information about the debt, gets no documents in connection with the debt, signs a contract where the seller doesn't stand behind the information sold (and sometimes specifically says amounts or interest may be wrong), and then attempts to collect on that debt. I've argued that this violates the FDCPA. In our comment we try to propose some ways to fix this problem going forward.

CapOne's taken a lot of flack today over its apparent desire to check what's in your wallet by visiting you at home and at work. The LA Times story got even bigger when it made it to Twitter and great (and lots of bad, see previous sentence) puns started rolling in.

The company answer seems to be that language from a security agreement for snowmobiles got "mixed in" with the credit card language (and no one over there is reading their 6-page contracts). They are now "considering creating two separate agreements given this language doesn’t apply to our general cardholder base."

I wonder if that means that they'll also revisit the part of the credit card agreements that takes a security interest in anything you buy from Best Buy, Big Lots, Jordan's Furniture, Neiman Marcus/Bergdorf Goodman, or Saks? (I should note, your clothes are only in danger if you have a Saks "retail" card; if your card is a Platinum or World card not only is your interest rate likely lower but it seems your stuff is also safe).

Let's be really clear about what most identity theft is about: it's about payments data. Identity theft is first and foremost a payments fraud problem. We don't know all of the details about what happened at Target and Neiman Marcus, but there's a really obvious weakspot in the US payments infrastructure that should be corrected, irrespective of whether it would have prevented the Target and Neiman Marcus breaches: the use of two-factor authentication, namely chip-and-PIN cards, which are standard outside the US and have been effective in reducing fraud.

Why don't we have chip & PIN here? Because the banks don't want to pay for it because they don't bear most of the fraud costs. The banks/payment networks are the least cost avoider of identity theft, but because merchants are eating most of the fraud costs, the banks have instead have opted for a complex set of security standards for merchants (PCI Security Standards) that are of dubious effectiveness.

I'm going to wade into unchartered Slips waters today and head into Bitcoinland. I've been trying to understand Bitcoin from a payment systems perspective, where it has an interesting problem and solution: double spending. The lesson in all of this is how Bitcoin has a sort of built in seniorage--payments are never free. Currently Bitcoin builds in its costs through inflation, which is not particularly transparent, but that will ultimately change to being more transparent--and salient-- transaction fees. By disguising its costs through inflation, rather than through direct fees, Bitcoin effectively incentivizes greater consumer use of the system, much as credit card usage is incentivized through no-surcharge rules preventing merchants from passing on the cost of credit card usage to consumers.

For years, "product innovation" in financial services made consumer advocates squirm. This was the cover term for the 2/28 teaser ARM, automatic and costly overdraft protection, and direct deposit "payday" style loans. It was a great term because it's hard to be anti-innovation, especially in a world where every day a new app or technology proves useful. A new credit card, called "Voice" from Huntington Bank, is innovating in the credit card space. While the pros and cons of rewards are debatable (Ronald Mann's Charging Ahead has a dated but good discussion of rewards), the marketing and design of the Voice card are intriguing. What do I see?

1) The personification of the bank. It "listens." Consumers can "tell the card" things.

2) Big touted benefit of a one-day late fee. That's a nice consumer perk but perhaps telling about how many late fees are really the result of simple mistake rather than financial hardship. And that's a fact that perhaps should play into what a "reasonable" v. "abusive" late fee is.

3) That consumers presumably will be drawn to this idea of switching up rewards. If people forget to pay on time, are they really going to log on at the start of every quarter to change up and maximize rewards. The card allows consumers to "Earn a point per dollar on all purchases with Voice and pick a triple rewards category. So, you get the flexibility to earn 3x points in the category where you spend most. Go from triple gas points in fall to triple utility points for winter. It’s your choice." Huntington presumably will track whether consumers actually make such choices, and it would a field day for a behavioral economist to study how consumers use such a product.

4) No annual fee, so hey, maybe chasing rewards on cards with high annual fees would do well here. Typically we see high rewards paired with high annual fee (think airline cards). Query how good the rewards perks can be if the bank doesn't have annual fee revenue. Maybe the answer is that Huntington is marketing this card to its retail customers, and it knows enough about their habits to have optimized this product--both in terms of attracting them and being profitable. There's been a lot of talk about personalized medicine, but personalized finance is a reality too.

Judge Rakoff issued an opinion today holding that the New York state credit card no-surcharge law violates the First Amendment of the US Constitution because a "surcharge" and a "discount" are two ways of expressing the same thing, and the state of NY cannot direct merchants which of those two ways of expression to use. I'm a little skeptical of some of Rakoff's authority--he cites a couple of papers by some Levitin character (here and here), but the opinion is classic Rakoff: "Alice in Wonderland has nothing on section 518 of the New York General Business Law."

This ruling has real significance in the event that the settlement in the multi-district credit card interchange litigation (MDL 1720) is ultimately approved because while that settlement amends card network association rules to permit surcharging in certain circumstances, surcharging remains impossible in 11 or so states that have no-surcharge laws. If the NY statute is unconstitutional, it's hard to fathom how other states' no-surcharge statutes would be too. Of course, we'll have to see what happens on appeal.

All's Quiet on the American Front in the interchange wars. But there has been some action to report in Canada and the EU. In Canada, the federal Competition Tribunal dismissed the suit brought by the Canadian antitrust authority against Visa and MasterCard. Only a summary of the decision is available--the ruling is under seal. According to the official summary, the dismissal was on the grounds that the statutory provision in question required a resale, which had not been established by the Commissioner of Competition.

But the Competition Tribunal went on to explain that in the event it was wrong about its statutory analysis, "there had been an adverse effect on competition" from no-surcharge rules. (My emphasis.) Nonetheless, the Competition Tribunal found that the proper solution to the antitrust problem is a regulatory framework, not an injunction.

So while this was a victory for MasterCard and Visa, it was a victory on technical grounds. The Canadian Competition Tribunal was clear that no-surcharge rules are anti-competitive. It'll be interesting to see if Canadian regulators or Parliament take up the implicit invitation to create a regulatory framework as we did for debit cards with the Durbin Amendment.

Felix Salmon has an interesting and provocative piece arguing Why Mobile Payments Will Never Take Off. The problem, Felix observes, is that none of the mobile payment systems around really offer any improved convenience over plastic. (Indeed, one might note that depending on the setting, cash is still the fastest, especially if security procedures for plastic, such as checking to see that a card is signed, are followed.) Felix also observes that the developing world examples of successful mobile payment systems, like M-Pesa, don't really present a model for the US. In the developing world, mobile payments represent the Great Leap Forward, bypassing the age of retail banking and plastic cards, and going straight from paper/barter to digital. If the contest is mobile vs. paper/barter, the outcome is likely to be different from mobile vs. plastic. Felix is right on both points. Still, I'm not as ready as he is to throw in the towel on mobile.

"Make it fun and they will come," Lauren Willis discussed in the instructive post that evaluated the pros and cons of "The Gamification of Financial Education." Meanwhile, in London, a live show has been designed for children as young as five to teach them about the financial system. Interesting story on the show in The Guardian here. Tickets to "Bank On It" (running through the 14th of July) and other information here.

That 99% invisible is a vibrant architecture and design podcast might have been beside the point in Credit Slips land -- but for the fact that its current show (Episode 78) focuses on the design and technology of casino slot machines, and the particular profitability of penny slot machines. The short piece is built on the work of M.I.T. professor and anthropologist Natasha Dow Schüll. Lots on the consumer finance and cognitive behavioral side of things; don't expect any mention of bankrupt casinos.

Wow. Credit card fraud really can happen to anyone, as the Washington Post's Al Kamen reported this afternoon. Apparently U.S. Supreme Court Justice John Roberts had his credit card number stolen and had to pay cash for his morning Starbucks.

This story raises so many questions. First, how many credit cards does Justice Roberts carry? Could it be that he carries just one? Second, what type of card was it? Third, where was it compromised? Fourth, how much hutzpah does this thief have? Did the thief not know who he or she was dealing with? Finally, I wonder if this event might bear on future consumer law cases before the court. One thing is clear. Even important people have to watch thier backs.

Over at VoxEU, economists Daniel Aronson and Eric French have a discussion about the their research of the effects of a minimum wage hike. I found my way to this post through Yves Smith's discussion of the topic at Naked Capitalism, which also includes some informative tables showing that the proposed hike to $9/hour is still below a living wage in many areas of the country.

Now that my last few posts have bludgeoned consumer financial education and at least bloodied disclosure, and given that my suggestion of comprehension requirements is completely untested as a means of consumer protection for financial products, what about “nudges”?

One nudge I have taken a close look at is the use of policy defaults. Defaults are settings or rules about the way products, policies, or legal relationships function that apply unless people take action to change them. Although some defaults in the law are mere gap-fillers and others, as pointed out by Ian Ayres and Robert Gertner, penalize one or more parties with the intention that the parties will contract out of them, policy defaults aim for stickiness. The idea behind policy defaults is to set the default to a position that is good for most individuals, under the assumption that only the minority who have clear preferences to the contrary will opt out.

February 27 is a big day for people interested in financial markets, consumer credit, and... well, many things of interest to Credit Slips readers. I'll be in New York, attending round two of the Second Circuit oral arguments in NML v. Argentina. Meanwhile, the Supreme Court will be hearing argument in In re American Express Merchants Litigation - the latest big arbitration case. Much of my academic writing deals with arbitration, so I want to take a minute to highlight the significance of the AmEx case.

Like many credit providers, American Express tries to escape class action liability by pairing an arbitration clause with a class action waiver, thus requiring customers to bring claims in arbitration, as individuals. In AT&T v. Concepcion, the Court rejected an attempt to use state law unconscionability doctrine to invalidate a clause like this. In the AmEx case, the Court must resolve an arguable conflict between two federal laws. Plaintiffs are merchants who accuse American Express of violating the Sherman Antitrust Act and want to bring a class action in federal court. (Actually, they waffle a bit on this (pp. 35-36), but let's just say they wouldn't turn up their nose at a federal class action...) Relying on the Federal Arbitration Act, American Express argues that the plaintiffs must honor their agreement to pursue these claims individually in arbitration. In its prior cases, the Court has resolved such disputes in favor of arbitration so long as that forum allows claimants to "effectively vindicate" their statutory rights.

I had a weird night’s sleep and then openned up my e-mail to find this headline from credit and collection news “Does The Consumer Bureau Harm Those It Claims to Protect? & Study Predicts Millions Will Die In Credit Card Red.” The immediate implication in my drowsy state was that the CFPB was somehow killing people. Wow. As it turns out, these were two headlines from two different stories, first one about how the CFPB was hurting Americans and the overall economy by constricting credit, according to a Heritage Foundation
paper by Diane Katz, available here.

The second story was by Laura Rolland of the Huffington Post, and contained some grim news from a recent Ohio State Study published in the January issue of the Journal of Economic Recovery. It claims, consistent with informal data from my financial literacy class, that young people are up to their eyeballs in debt. According to Rowley, Millions of young Americans will die in debt to credit card companies. The study data show that people in their late 20s and early 30s (born 1980 to 1984) carry significantly higher credit card debt than older generations and pay it off more slowly, have about $5,700 more than people born 1950 to 1954, and $8,200 more than those born 1920 to 1924. The study even predicts that these young people will continue to charge well into their 70s.

Community banks and credit unions are the darlings of Congress in the financial services industry. This is quite understandable--they play an important economic role in their communities and have a much greater civic presence than the big banks. The president of the local community bank is much more likely to be involved in major civic organizations than the Bank of America branch manager. As a result, a parallel regulatory system has developed for community banks and credit unions. Small banks and CUs (net assets of less than $10 billion) are exempt from CFPB examination and from the Durbin Amendment's regulation of their interchange fees. They're subject to regular FDIC seizure, rather than OLA, and are not subject to SIFI regulation with higher capital requirements. And they would have been exempted from the proposed cramdown legislation.

There's a linguistic irony that "gift" is the German word for poison. What, then, should we make of the "gift card"?

Senator Richard Blumenthal's introduced new legislation, the Gift Card Consumer Protection Act (S.3636) that aims to close up the loopholes in existing gift card regulation and to protect consumers with gift cards when the retailer goes bankrupt. The legislation has a few moving parts:

It expands the definition of gift card to include loyalty, award, and promotional gift cards.

It would make the prohibition on dormancy, inactivity, and service fees absolute. Currently, the Electronic Funds Transfer Act permits inactivity, dormancy, and service fees for cards that have been inactive for a year, provided disclosure requirements have been met.

It makes the ban on expiration dates on gift cards absolute. Currently, the EFTA allows cards to expire after 5 years if the expiration date is properly disclosed.

It makes it illegal for bankrupt firms to sell gift cards and for anyone to resell gift cards issued by firms that have been in bankruptcy for more than a week.

The bill creates an automatic stay exception for presentation of gift cards and requires the trustee/debtor in possession to honor gift cards at full value the same as cash.

It'll be interesting to see what the opposition ends up being to the bill. The bill is dealing with two separate, but related problems.

Preliminary approval was granted for the interchange litigation settlement (MDL 1720) last Friday. Approval was widely expected, but I would also expect an appeal. What the 2d Circuit will say is anyone's guess, and then there is still the question of final approval. Nonetheless, I think it's worth commenting on one aspect of the settlement that I haven't previously addressed, namely the incentives of the various named plaintiffs to support or oppose the settlement. This is both a matter of law and a matter of optics.

I have been working for a few years in developing and creating a consumer outreach website at MyConsumerTips.info. The site is purely non-profit and has no sponsors or advertisers. It aims to simply provide consumers with “consumer tips” that change each day, independent summaries regarding debt-related and other consumer rights, quizzes and polls regarding such issues, and other consumer protection resources. It is user-friendly and interactive. This is part of my larger “Consumer Empowerment”service and experiential learning projects, and outreach endeavors.

Unfortunately, it is tough to gain traction for such non-profit sites without paying for promotions through Google or others. Also, there so many sites that purport to provide consumer resources that individuals suffer information overload and are not sure what to trust.

Yesterday, I wrote about the "squeaky wheel system," or "SWS" for ease of reference, which I explored in my article, Access to Consumer Remedies in the Squeaky Wheel System. The research shows that consumers who have and take the time and resources to complain (or “squeak”) often get what they want. For example, consumers with the time and patience to endure the labrynth of their phone company's customer assistance line and actually speak with a representative regarding an increase in their bill are much more likely to get "loyalty" and other such discounts.

That said, I have noticed that companies are even becoming more stingy in providing assistance to proactive consumers. For example, a manufacturer recently insisted on charging me for shipping to send me a replacement for a blender that was under warranty. Sure, the warranty covered replacement . . . but not shipping (a la "fine print"). The warranty was therefore meaningless since the blender was worth about the same as the shipping cost, and it would be silly to expend resources to sue using UCC Article 2 or other warranty arguments. Furthermore, I have been unable lately to catch many breaks on increased fees for phone and internet service, and had difficulty in obtaining any assistance from some credit card companies when trying to rectify the issues I faced when my purse and all my credit cards recently were stolen.

I was really hoping that I would be able to go at least a year without having to call Todd Zywicki out for his comments on some consumer finance issue. But it's not to be. Zywicki has weighed in on the interchange settlement, proclaiming it to be great thing for consumers. Mission accomplished.

How does Zywicki reach his conclusion? By claiming that:

[the settlement] does affirm the core principle that interchange fees should be set by free markets and consumer choice rather than by judges or politicians, thereby preserving the engine behind one of the marvels of the modern age: the evolution of a 24-hour globally-connected system of instantaneous, secure, and ubiquitous payments system.

Let's put aside the fact that other countries have more advanced, more secure, faster, and more ubiquitous payment systems than the United States without oppressive card network rules and price-fixing. Apparently this is an ideological matter. The settlement affirms the primacy of free markets and consumer choice, Zywicki claims. How? Zywicki isn't long on the details, but the answer would be that it preserves the current interchange fee system. In short, the settlement is a victory for consumers because it accomplishes next to nothing.

I've held my tongue for a while on the proposed class settlement in the multidistrict credit card interchange fee litigation (MDL 1720). I'm weighing in on it now. I've written up an analysis of the proposed settlement. It's available here. [N.B.: this is substantially expanded 8/21 revision of the original 8/15 analysis.] It's worthwhile noting that the settlement is not a done deal yet--at this point it is a deal between lead counsel for the proposed plaintiff class and the defendants--the settlement must still be accepted by the named plaintiffs (or at least some of them) and approved by the court, and it appears that at least several of the named plaintiffs will reject the proposed settlement.

The short version of my analysis is that the settlement is an exceedingly bad deal for merchants and not in the public interest.

Current Guests

Policies

Past Contributors

Credit Slips is pleased to have had the following persons join us as continuing blog authors in the past or as guest bloggers for a week. Their contributions have added new perspectives and ideas to this site, and we thank them for their participation.

Follow Us On Twitter

Like Us on Facebook

Like Us on Facebook

By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

Archives

Search

search the Internet
search Credit Slips

Bankr-L

As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information.
Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service,
membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a
subscription on Bankr-L, click here to visit the page for the list and then click on the
link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL
with a professional bio or other identifying information would be great.